The Growth of Doctor Networks: Will “Healthcare Islands” Appeal to Value-Seeking Millennials?

Around the country, doctors are leaving independent practice and joining large groups owned by healthcare systems. It’s a trend: the recruiting firm Merritt Hawkins predicts that if current growth continues, over 75 percent of newly hired physicians will be hospital employees within two years.

There seem to be a number of reasons for this consolidation of physicians and hospitals into “islands” of care. One is the desire for larger groups to have a better negotiating position with payers. Another is having better access to access to tools to manage quality-based reimbursement, risk contracts, and accountable care models.

Perhaps most important, groups are coming together to “control the referral” by keeping patients within a closed ecosystem, or island of care, while steering volume to affiliated/ owner hospitals.

Being part of large organization is good for many doctors. They can cloak themselves in white lab coats embroidered with their health system’s logo and rely on referrals that are based on their system affiliation. It’s also good for hospitals because they fill their beds at night.

And, while an “all inclusive” concept of closed ecosystems has merit, particularly for older patients who value the security and convenience it offers, it would be a mistake to assume that a curated ecosystem will appeal to everyone. Indeed, there is a real danger that cost conscious, discriminating buyers– particularly Millennials– will shun curated networks, regardless of their brand, in favor of “a la carte” shopping across many networks.

At a high level, two forces are pushing against the closed ecosystem model:

Many consumers are migrating to high deductible health plans which make them extremely price conscious. They may want their surgery done at hospital “A” by doctor “B” and have the MRI done at the corner independent imaging center. They will take deals where they can find them.

We are seeing an emergence of patients who are willing to shop around to get the most specialized caregiver for a given condition at the most transparent and reasonable price. Millennials are disproportionately in this “value seeking” group according to work done by Deloitte. They are more likely to be insured by high deductible plans, feel healthcare value is poor and are increasingly willing to shop item by item even if it means buying services from several systems simultaneously.

A prediction: The growing transparency of costs/ outcomes in healthcare may add fuel to the “a la carte” shopping trend. If a reliable physician and hospital trust platform can finally get up and running (imagine a healthcare TripAdvisor with robust and audited outcomes data adjusted for acuity) comparison shopping may greatly diminish the value of “healthcare islands” from the consumer’s perspective. Patients will pick the best caregiver for their needs independent of a PCP referral or a doctor’s participation in a network. The health system logo on the doctor’s lab coat just won’t have the value it once did.

“Managing capitation can be deceiving. Like flying an airliner, the gauges, levers and controls can make it seem like high-stakes science. It is, partly. But as with all things healthcare this is ultimately about humans, their needs and their behaviors. You eventually learn that managing the payment model is as much an art as is the actual practice of medicine”.